Klarna, Affirm, & Afterpay: Boost Your e-Commerce Business With the Best BNPL Option

1. Overview – Pandemic Drives e-Commerce & BNPL Explosion
2. What is Buy Now Pay Later?
3. Klarna, Affirm, Afterpay: The Best of BNPL
4. Choose Your Best e-Commerce BNPL Option
5. BNPL is Here to Stay

1. Pandemic Drives e-Commerce & BNPL Explosion

We have called every day for countries to take urgent and aggressive action.

Dr. Tedros Adhanom Ghebreyesus, Director-General of the World Health Organization

On March 11 2020, the WHO made the assessment that COVID-19 could be characterized as a pandemic. WHO reiterated a previous call for “urgent and aggressive action” and by April 2020 more than 90 countries or territories around the world had mandated or recommended some form of lockdown or shelter-in-place strategy. Work sites, public spaces, and marketplaces were cleared of people and the face-to-face interactions of everyday human life largely ceased.

Practically overnight, face-to-face or in-store shopping traffic fell precipitously. Consumers with access to Internet marketplaces turned their patronage en masse toward e-commerce providers. Online shopping was already pushing many brick-and-mortar retailers toward bankruptcy, including venerable firms like JC Penney, Sears, Macy’s, and Neiman Marcus, when pandemic control efforts ignited an explosive rush to Amazon and other online shopping centers. And virtually every type of retailer, from Walmart to Walgreens, moved their business further into the online space.

At peak pandemic, online discretionary or non-essential purchase intent—apparel, footwear, jewelry, home furnishings & appliances and similar categories—dropped as much as 46%. However, driven by 15–30% increases in spending on essentials such as groceries and household supplies, overall e-commerce volumes still leaped forward an estimated equivalent of 4-6 years of normal growth. When the pandemic emergency eased, discretionary sectors soon regained ground as the e-commerce wave set in motion during the crisis continued to propagate.

Now, increased adoption of the online shopping paradigm with no end in sight presents new opportunities for businesses in the burgeoning, highly competitive e-commerce space. Consumers need and want to shop while still adhering to social-distancing habits adopted during the height of the pandemic; many have simply grown accustomed to staying home more, and the accessibility of online shopping affords convenience and potentially more satisfaction than the face-to-face experience.

Enter BNPL

The pandemic (and now new-normal) economy has been characterized by job losses, millions of small business closures, high inflation, volatile market conditions, high inflation, and erratic, undependable supplies of materials, goods, and services of all types including human resources. Customers and merchants alike are struck by a dramatically heightened sense of financial uncertainty. Consumers need to relieve personal or household financial pressure and conserve cash; online merchants need to facilitate much higher online sales volumes in order to take advantage of booming demand.

Buy now pay later (BNPL) plans are one answer to those needs. Growing along with the flourishing e-commerce sector, the BNPL phenomenon has been attracting major attention across the fintech and Internet marketing media. The corporate world smells opportunity in BNPL, and during 2020 earnings calls, corporate executives mentioned BNPL-related terms a record number of times. BNPL plans give consumers increased spending power and reduce the weight of cost concerns in buying decisions; the plans are particularly attractive to younger shoppers who are the most active online shoppers but may be capital- and credit-restricted.

BNPL options have long been available to online shoppers. The seminal model was established by fintech pioneer PayPal with its lineup of early online BNPL solutions including PayPal Credit and Easy Payments financing (In August 2020, PayPal added Pay in 4, another installment credit option.). But BNPL came to the fore in a major fashion riding the pandemic e-commerce wave, and industry leaders Klarna (Sweden, est. 2005), Afterpay (Australia, est. 2014), and Affirm (USA, est. 2012) were among many providers that saw avalanches of traffic continuing beyond the pandemic emergency.

BNPL Usage Breakdown by Age

Who uses BNPL?

Recent research by multiple fintech-oriented marketing analysis firms reveals overall BNPL user figures that range from 55.80% to 60% of surveyed online shoppers as of March 2021. BNPL has already achieved deep penetration among younger online shoppers. Over 50% of US millennials indicate an awareness of BNPL, and millennials are the major market in the sector, with Gen Z consumers close behind.

The numbers indicate that BNPL service is most popular with consumers between the ages of 18–44. Among those aged 18–24, 61% had used a BNPL service; for the group aged 25–44, usage was at 60%. Usage in the 45–54 age bracket was at 53% and that number reflects growth of 26% from July of 2020.

BNPL plans are also gaining trust among consumers over the age of 54, with usage growing from 20% to 41% between July 2020 and March 2021. The timing of these increases aligns with findings indicating that 64% of BPNL users have made more use of such services since the beginning of the COVID-19 pandemic.

At this point, BNPL makes up only a small portion of the $8 trillion annual US credit spend volume (including credit, debit, & prepaid cards), but it is very likely to become a common payment method for consumers from the younger generations. New user and transaction growth figures are soaring, and the big BNPL players, currently Klarna, Afterpay, and Affirm, are soon to become household names.

Projections indicate a growth rate of 10–15x current volume; the global BNPL industry is set to exceed $1 trillion in annual gross merchandise volume by 2025. Going forward, BNPL is likely to become an expected standard feature of the e-commerce user experience.

2. What is Buy Now Pay Later?

Buy now, pay later as a marketing and sales strategy has roots in much older layaway marketing techniques. Layaway is a type of purchase agreement made on merchandise that a buyer cannot or does not want to pay for all at once. The customer makes a deposit or down payment and the seller then reserves, or lays away, the merchandise for a period of time until the buyer pays off the balance. There may or may not be a fee for the service, and failed transactions are handled according to pre-established policies–the customer may get total, partial, or no refund of payments.

Layaway has probably been common among traders and merchants since ancient times. The use of layaway plans became widespread in modern consumer economies during the Great Depression of the 1930s. Many people and households faced economic challenges that could put even slightly costly purchases out of reach. With restricted access and high interest rates eliminating conventional bank credit as an option, layaway payment plans emerged as a way to help consumers make purchases and merchants make sales during times when money is tight.

Such plans remained popular at retailers large and small until the expansion of the credit card business in the 1980s made layaway obsolete. But the practice never completely disappeared, and economic hard times since the 2008 financial crisis along with legislation increasing consumer credit limits motivated large retailers including Walmart, Sears, Marshalls, Burlington Coat Factory and others to resume their layaway services. As technology made it faster and easier to offer consumer credit at the point of sale, layaway began the transition to a BNPL model.

The rise of the financial technology sector and popularization of online shopping prompted start-ups specialized in the provision of e-commerce payment processing and BNPL services. Klarna, one of the largest players, started operations in Stockholm Sweden in 2005. Affirm, Quadpay, Zip, Perpay, Sezzle, Afterpay and many others have since followed Klarna into what is still a largely unregulated boom-town space, but the basic model is similar across the sector.

e-Commerce Platform BNPL Integrations

How BNPL Works

A retailer partners with a buy now pay later platform that is compatible with their e-commerce software or POS system, then offers BNPL as a payment option. Online shoppers choose the BNPL payment plan they want when completing a transaction on their computer or mobile device. In-store, BNPL options typically show up at checkout as payment links or QR codes. In either case, an approved customer receives their item immediately and pays for it over time, typically in 4 payments, with the BNPL provider paying the merchant and handling the collection of payments from the customer.

Consumers can sign up for a BNPL account with the provider then use the service much like a credit card, making more purchases (as allowed by the plan and credit limit) and going to the provider’s website to track activity. Most BNPL providers also offer a dedicated consumer smart phone app that seamlessly integrates via API with brick-and-mortar POS systems and works from a digital wallet like any other credit card. The leading BNPL providers now partner with merchants to offer in-app shopping along with rewards programs and other services.

BNPL platforms let shoppers access instant credit in the form of pre-set installment payment programs, often for no extra cost or less than the cost of using a credit card. BNPL users report making purchases that do not fit in the budget as the most common reason to use the services; 48% say that they have used BNPL to buy electronics, the most popular use for BNPL, 41% bought clothing and fashion items, 39% furniture or appliances.

Users can pre-qualify, a process designed to be simple and fast, when they set up the smart phone app. Many BNPL providers require a soft credit check with no minimum score; others do not check credit. Available payment plans, credit limits, fees and interest, terms and policies can vary widely by provider. Some providers also offer several different programs, and the state or region where the plan is used, the purchase amount, special offers, and other factors can affect BNPL terms.

BNPL offers selling points aimed at both consumer and merchant. Consumers enjoy a seamless buying experience characterized by convenience, flexibility, and transparency. Sellers pay BNPL providers merchant fees that might be 2–3 times typical credit card charges to gain increased sales conversions, lower user acquisition costs, and higher average order values (AOV). For example, Afterpay and PayPal’s Pay in 4 both claim to boost AOV by up to 20%; Affirm reported increasing 2019 merchant AOVs by 85% as compared to other payment methods.

Major brands including Lululemon, Target, Urban Outfitters, and Wayfair have acknowledged the value of offering customers alternative payment options and incorporated BNPL offerings. The services are popular internationally, and in China the ubiquitous social apps WeChat and Alipay have built-in BNPL capabilities.

Research conducted during the 2021 holiday season from November 1st, 2021 to January 1st, 2022 revealed that Klarna holds a strong lead among BNPL providers, with over 5 million Android and iOS downloads during the 30-day period. Afterpay ranked second with 820,533 downloads, followed closely by Affirm at 730,109 downloads. Minneapolis USA-based Sezzle came in a distant 4th at 225,515 downloads.

3. Klarna, Affirm, Afterpay: The Best of BNPL

When considering adding a BNPL option to your e-commerce site, it is important to find a match between the consumer-facing features and terms offered by a given BNPL provider and the characteristics and preferences of your target market along with the type and cost of products being sold. The terms and practicalities of the platform/merchant relationship are of course also a critical consideration, and as with any payment company, merchant applications are subject to approval.

BNPL provider terms and conditions on both consumer and merchant sides are complex and widely-varied from platform to platform, and according to the locale where the provider is offering services. For complete, accurate information, visits to provider websites and contacts with merchant account representatives are essential. Summary overviews of the 3 BNPL sector leaders are provided here as a starting point.


Founded in 2005 by three Swedish fintech entrepreneurs, Klarna now operates across Europe and in the US, serving over 90 million customers and 250,000 merchants in 17 countries. Klarna has much to recommend it to the forward-looking e-commerce operator, starting with its solid presence and backing in the banking and payments space. Already the largest fintech startup in Europe, Klarna has funding partnerships with several major banks and investment groups including giants like Softbank Group and Ant Financial. Large consumer brands partnered with Klarna include Air France, Ambercrombie & Fitch, Bose, Dolce & Gabbana, Expedia, Lenovo, Ticketmaster and others.

Klarna’s business model revolves around providing the smooth shopping experience preferred by Millennial and Gen Z shoppers, so it is a good choice for merchants serving a younger customer base. Basic installment and pay-later plans require only a soft credit pull, and the company’s “try it before you buy it” payment mode allows customers to delay payments for 14 or 30 days after shipping, try out the product, and return it if they wish. A simple credit card-like user experience, digital wallet function, rewards programs, and a huge selection for in-app purchases are further enticements to young generation shoppers.

Klarna is also suited to the sale of big-ticket items because along with the basic BNPL service offering 4 interest-free installments paid every 2 weeks, consumers can opt for Klarna’s 6- to 36-month financing plans (a full credit check is needed for these plans).

Online retailers can benefit from Klarna’s strategies to reduce online checkout friction and lower cart abandonment rates. The company has streamlined the checkout process with no account signup required and a “buy now” express button that essentially closes the deal without payment. Klarna accepts the risk of paying the merchant when the product ships, then informs the customer about the payment schedule. Klarna claims that the express button lets customers check out 3x faster.

Klarna merchant charges include a monthly product fee, fixed transaction fee of $0.30, and variable percentage fees up to 3.29% or 5.99% dependent on the payment plan selected by the customer, and the country where the transaction takes place.


Affirm was founded in San Francisco, California in 2012 and currently serves U.S.-based businesses or foreign businesses with a U.S. entity and a majority of customers with U.S. billing addresses. As a personal loan provider, Affirm does not strictly fit the classic BNPL model of the other two platforms profiled here. However, Affirm offers instant approval, has thousands of online and brick-and-mortar retailer partners, charges no fees of any kind including late fees, and has a high credit limit of $17,500.

These popular features have attracted consumers to choose Affirm for financing over 17 million purchases, and earned the company a spot among the top 3 BNPL platforms. In 2021, Amazon announced a partnership that would allow certain customers to use Affirm to access instalment payment options on purchases from the online shopping giant.

Affirm offers consumers flexibility with two loan options: they can borrow money to make monthly installment payments on purchases at partner stores or they can access Affirm Pay in 4 to split purchases less than $250 into 4 biweekly payments at 0% APR. Customers can prequalify via the Affirm app or through a partner retailer with a soft credit check, and all loan details are provided upfront with no hidden fees.

Relatively easy approval and no required minimum credit score make Affirm a viable choice for serving markets where consumers’ limited or lacking credit history can impact buying decisions. The ability to choose a payment schedule that suits their needs and leverage good payment performance into access to more Affirm credit over time is a selling point for customers on the margins of the credit system.

A relatively high credit limit of $17,500 makes the platform viable for most e-commerce applications while very low minimum loan amounts and payment terms as short as 2 weeks open up access to market segments that might normally turn to the payday or auto title loan sectors.

Affirm claims businesses that partner with the platform see new customer growth as consumers find an attractive selection of flexible BNPL options presented in the company’s Adaptive Checkout app. The company’s numbers indicate that merchant partners enjoy an 85% increase in AOV, a 20% repeat purchase rate, and access to more than 8.7 million shoppers from the Affirm premium network. Affirm also requires no minimum sales volume for partnership and will tailor options to your specific situation and product offerings.


Afterpay, launched in Australia in 2015, was recently acquired for $29 billion by San Francisco financial services and digital payments company Block (formerly Square, renamed December 2021). Operating in Australia, New Zealand, the U.K., E.U., Canada, and the U.S., Afterpay is partnered with over 100,000 brands and serves more than 16 million customers.

With no credit check required, no fees or interest with on-time payments, and every purchase subject to an instant approval process guided by smart credit limit algorithms, Afterpay is a good payment option for college students and other beginning credit users. Afterpay does charge late fees capped at the lesser of 25% of the order amount or $68.00 for U.S. shoppers, but late payments are not reported to credit bureaus. Instead, the account is locked until payments are caught up, and future spending limits may be reduced. This system offers beneficial education rather than harm to young consumers.

The ability to break a purchase into 4 bi-weekly installments with no interest or fees at all, an attractive in-app shopping selection, and the opportunity to develop money-management skills in a relatively non-punitive framework are features that should attract many conversions when the Afterpay option is offered to the right e-commerce audience.

The platform is also known for its ease-of-use. For online purchases, Afterpay is chosen at checkout, an account is created, and a down-payment of 25% completes the sale. In physical stores, the app is downloaded and the platform works like other BNPL apps by creating a digital card that is added to the user’s mobile wallet.

Afterpay charges merchants a $0.30 transaction fee and a 4–6% commission per transaction (depending on the agreement). In contrast to Klarna and Affirm, where merchant payments are sent when items are shipped, Afterpay reimburses the seller when the customer has received the items. This may be a downside depending on individual situation; it may be balanced out by being able to reach a younger and often ignored consumer demographic with the easy terms and 90% average applicant approval rate offered by Afterpay.

4. Choose Your Best e-Commerce BNPL Option

There is little doubt that having one or more BNPL options present at checkout can have a positive effect on almost any e-commerce business. BNPL fintech drew a lot of attention during the pandemic lockdowns and is a hot sector where a significant amount of research effort has been expended to explore the relationship between various purchase and finance options and the behavior of online shoppers.

Increase Conversions: Easy financing eases the decision to buy—it’s a marketing truism that is just as valid at the e-commerce storefront as it is on the used car lot. Price point should not serve as a deterrent that puts an end to the buying journey when BNPL options can provide easy-access, low-cost solutions to affordability. Having that option in hand lets the customer shop with intent and make a purchase decision early in the product exploration process. This translates to higher revenues for the online retailer.

Boost Order Value: Multiple studies show offering BNPL options increases AOV for online purchases. Enjoying zero-interest financing, avoiding credit card debt, and conserving cash for emergencies are relatively intangible benefits as viewed from the POS. In contrast, the lower cart total produced by applying an installment plan to the purchase is a clearly visible motivator. The customer is encouraged to keep shopping and follow through with the transaction.

Enhance Customer Engagement: It’s clear that shoppers appreciate more flexibility at checkout whether online or in-person. Adding BNPL tends to build customer loyalty and bring back repeat shoppers. This ties in with customer engagement, because more flexible payment options can help customer stay engaged with a brand. Numbers from Afterpay reveal that 93% of gross merchandise sold value is generated from repeat customers who want to buy from a brand they previously patronized but need some financial help accessing. Providing simple, transparent financing options also increases trust between the consumer and retailer, leading to higher frequency of purchase.

5. BNPL is Here to Stay

BNPL is already a fixture in the world of e-commerce, and the platforms are gathering more users every day. Choosing the best BNPL platform for your specific situation and needs calls for careful evaluation of your target audience, the overall feel of the user experience and customer journey you want to offer on your site, the technical aspects associated with integrating the chosen platform(s), and of course the budgetary impact of merchant fees and charges.

With plenty of concrete upsides and little to no risk for the merchant, there is no reason to shy away from what is quickly becoming one of the most popular payment options among new generations of dedicated online shoppers.